By Skip Rawstron, CEO, Rawstron Insurance
Staying current in the rapidly changing "green insurance world" should be a priority for agents and brokers who view themselves as professional advisors to their clients. Being conversant with the many dimensions of the sustainability movement stretches across most industries, not just real estate. The green insurance world has expanded to include commercial and residential real estate, construction, manufacturing, utilities, "clean tech," alternative energy, and service providers such as architects, engineers and consultants.
And the list doesn't end here. What about hybrid and electric vehicle manufacturing? What about "green leases," which present a myriad of issues unique to sustainable buildings? The potential for acting as an advisor on green insurance issues is almost as limitless as a creative agent or broker's imagination.
And insurers are on the same page. There is a widespread belief among insurance executives that policyholders who embrace and practice sustainability in their business are more attractive risks. While there is not enough credible information for the actuaries to consider as statistically relevant, early indications are favorable.
What's out there?
There are hundreds of green insurance solutions and a wide variety of green endorsements. Reading them, understanding them and recommending the right contract language and appropriate limits of coverage is a complex task at best. The coverage forms, terms and conditions, and limits that are available vary widely.
One of the first insurers to get into green was Fireman's Fund, and in my opinion, still leads the pack. Liberty Mutual offers some interesting solutions as well, with a directors & officers policy designed to provide protection for sustainability issues.
The "green upgrade" endorsement pioneered by Fireman's Fund is a revolutionary form of protection that facilitates a building owner being in a better position after the loss than before the loss. The cost of this endorsement presents the strongest value proposition I am personally aware of.
But insurance products aren't the whole story. The green movement has fostered the creation of numerous ancillary services, including green loss control consulting, green energy audits, green claims adjusting, and now green (sustainable) insurance and risk management consulting.
These interwoven services, particularly for green real estate owners or real estate owners interested in modernizing their properties through the LEED EBOM (existing buildings operations and maintenance), are proving to be quite valuable (see below).
The green loss control consulting includes suggestions for capturing energy efficiencies, water conservation, recycling of damaged building materials (e.g., after a fire), awareness of tax credits and incentives from utility service providers, and improving net bottom-line income. Several sources have designed checklists that rank operating efficiencies that can be implemented, by cost and by the duration necessary to recoup investment return.
It is rumored that more than one carrier is investigating premium discounts on workers' compensation that is tied to several studies that indicate workers in LEED-certified buildings are more productive, that the employers are rewarded with better attendance, and as a result have fewer work-related accidents.
Why go green?
I've been interested in green insurance for longer than most. My career started in 1978 and has been devoted to real estate insurance, including all forms of commercial and residential real estate. My involvement with green insurance goes back to when it was purely theoretical and controversial. It's been very interesting and a "sleep insurance" feature that continues to evolve.
But for some agents and brokers, it's still a tough sell. Broker colleagues and prospective clients ask me why a real estate owner should buy the so-called green endorsements. Isn't the building ordinance coverage sufficient?
The simple answer to these questions are that the green update coverage provides better than replacement cost that replaces new for old, with like kind and quality materials. Clearly, this does not provide for rebuilding with green materials or more energy efficient HVAC. The building ordinance only helps if the current building codes of a city, county, or state authority require them. In San Francisco, San Jose and Los Angeles, for example, there are local ordinances that mandate LEED-certified rebuilding in specific situations and for all new construction--and other municipalities across the country are following suit.
The biggest market for selling the green insurance endorsements is overlooked by many agents and is not understood by many real estate owners. That market is what's referred to in green vernacular as EBOM. This acronym stands for Existing Buildings Operations and Maintenance and it includes every building in the United States that was not originally built to LEED standards. These buildings have been called "brown buildings," and some have speculated that in the future they may become obsolete if they are not upgraded to LEED EBOM standards.
The possibilities for upgrading these brown buildings are amazing. Adobe Systems Inc. recently completed a LEED EBOM certification for a San Francisco office building they own that was originally built in 1910. Every commercial property owner is a prospect for the green update coverage and if you don't offer it where it's available, someone else will.
Checking the resources
There are many resources for agents to learn about ways to improve energy use, foster recycling , increase bottom-line revenue and promote employee morale and participation. New organizations and information sources crop up every day.
The U.S. Green Building Council is probably best known as the leader of the green building movement. In Sacramento, there is www.mygreencabinet.org, a rapidly expanding coalition of like-minded professionals, professional services firms, and utility firms with broad appeal not only to the real estate industry, but also to the business community in general. There is also AGPOM, the Association of Green Property Owners and Managers (www.agpom.org). Both of these organizations share business plans that will assist you and your clients in developing sustainability plans.
For insurance professionals, another great resource is Green Building Law Update, which can help you keep current with changes in state and municipal building codes and regulations.
Over the years, I have compiled quite a green library. A Google search for "green insurance" just resulted in 22,400,000 hits. There are PDFs of some of these articles on my Web site and I will be adding the available documents and links.
It's in every agent and broker's best interest to learn about the nuance of green coverage and act as an advisor to their clients--because if you don't, your competitor will.
Skip Rawstron is CEO of Rawstron Insurance, Sacramento, Calif., an insurance consulting firm specializing in real estate, construction, property management and property development, with an emphasis on green real estate. He has 32 years' experience specializing in real estate accounts.